Saturday, September 07, 2013

One of the biggest VC trends in the past half-decade has been the move towards what people are now calling "platforms." While the details vary by firm, the common thread is moving from the classic VC model (a small number of General Partners who make investment decisions, market the firm, and help build companies) to expanding the firm to include non-investment professionals who help with all the non-investing activities.

The platform approach is nothing new; a number of VC firms have had operating partners in the past, focusing on specific disciplines like marketing, recruiting, and operations. In that sense, they're imitating private equity firms, who have always had a strong operating orientation.

What is new is the renewed focus on branding VC firms based on their ability to offer services. The top firm in this regard is Andreesen Horowitz, though other firms have done interesting things as well (First Round Capital's content strategy, "First Round Review" comes to mind as a particularly well-executed example).

The danger, I feel, is that people are mistaking correlation for causation. Andreesen Horowitz, Greylock, First Round, et al are investing in platforms; Andreesen Horowitz, Greylock, and First Round are successful. Therefore, platforms cause success.

In fact, I think that the arrow of causation points in the opposite direction. Successful firms have the resources to invest in platforms. I think they believe it will help differentiate them. I'm supportive, but skeptical.

VC platforms are like celebrity entrepreneurs. Both are nice to have, and help with branding. But both are irrelevant if the underlying performance isn't there. I'm a nice guy, so I won't name names, but I'm pretty sure you can easily think of a couple of firms who have spent a lot of money on platforms, but haven't delivered returns--you never hear them talked about in the same breath as the a16z and Greylocks of the world. You can also think if plenty of celebrity CEOs whose companies withered and died despite their magazine covers and breathless profiles.

I love that VCs are trying to be more helpful. But I'm skeptical that any entrepreneur decides to work with a firm because of its platform, if another firm that has a better track record of picking home runs also offers to invest.

I was affected and inspired by Paul Tough's recent book, "How Children Succeed." In this book, Tough combines neuroscience, educational research, and striking stories to explain how both sides of the political spectrum are both right and wrong about how to fix America.

Conservatives are correct that character is the keystone of success. Over, and over, the research shows that the students who have the greatest grit and resilience, not those with the highest IQ scores, are the ones who succeed in school and in life. Character matters, and there's such a thing as good character and bad character. The liberal desire to avoid blaming the victim prevents them from acknowledging the truth of this, which in turn means that many well-meaning government interventions do little good.

On the other hand, liberals (in the American political sense, I might add, as opposed to the classical liberalism of The Economist) are correct that we as a society would be wise to provide a stronger social safety net for children. Poverty and stress actually impact the way that the brain develops, causing lifelong issues (and adding additional costs to society). Private charities and religious institutions help, but are inconsistent and insufficient. From an economic standpoint, we would be better off collectively making an up front investment in the well-being of poor kids.

I'm a firm capitalist, but I've concluded that America would be better off if we had a comprehensive social safety net that would provide the essentials of food, healthcare, and education to all.

The new science of adversity presents a real challenge to deeply held political beliefs on the left and the right.

To liberals, the science is saying that conservatives are
correct on one very important point: character matters. There is no
antipoverty tool we can provide for disadvantaged young people that will
be more valuable than the character strengths of conscientiousness,
grit, resilience, and optimism.

But the character strengths that matter so much to young people's
success are not innate, and they are not simply a choice. They are
molded, in measurable and predictable ways, by the environment in which
children grow up. That means the rest of us--society as a whole--can do
an enormous amount to influence their development in children. Parents
are an excellent vehicle for those interventions, but they are not the
only vehicle

Wednesday, September 04, 2013

The "everyone should learn how to code" meme has probably reached the point of absurdity. My favorite (humorous) example is the "Dear Miss Disruption" advice column, in which every question, no matter what the topic, concludes with the answer, "learn to code."http://bit.ly/1aRFVDa

But my old professor Tom Eisenmann of HBS did something that few others have--he actually polled a bunch of MBA students who took a computer science class, and asked them about their experience. Imagine that, actual data!http://bit.ly/1akvZD5

"Of the 18 survey respondents who founded a startup, joined an existing
startup, or went to work for a big tech company upon graduation, 83%
answered "yes" to the question, "On reflection, was taking CS50 worth it
for you?" and 17% said "not sure." Of these 18 respondents, none said
that taking CS50 was not worth it. By contrast, of the six respondents
who pursued jobs outside of the tech sector — say, in consulting or
private equity — only two said CS50 was a worthwhile investment; three
said it was not; and one was not sure."

The numbers are way too small to be statistically significant, but it certainly seems like students who chose to take a CS class (an admittedly self-selecting group) found it beneficial. The interesting thing is why. For the most part, the students didn't get value out of coding. Instead, they improved their ability to work with developers, and demonstrated their commitment to high tech.

The fact is, having businesspeople spend their time coding violates nearly 240 years of economics. It's hard for me to imagine that a 25-year-old MBA can create more value for their startup by coding apps based on a couple of Code Academy courses than they can by developing customer relationships and lining up financing.

I studied Engineering at Stanford, and even got an A+ in CS106A, but I've never written a line of production code (unless you count HTML). That's fine. That's not my value. But my experience has helped me work closely with software development teams my entire career.

Tuesday, September 03, 2013

Ben nailed it on the head when he said that founder/CEOs who are product visionaries flounder when they disengage from the product: "It turns out that the CEO was only world-class at the product, so she
effectively transformed herself from an excellent, product-oriented CEO
into a crappy, general-purpose CEO. Looks like we need a new CEO."

But I want to make sure that people appreciate the wisdom of his advice on how to stay engaged with the product, not just for Product CEOs, but for any member of a startup team. Here are Ben's points:

Paul has the last word on the "Silicon Valley doesn't tackle big problems" meme:

"I think people underestimate how small big ideas were when they first
got started. Microsoft's first product was an implementation of the
BASIC programming language for a machine called Altair. There were
probably a few thousand users, total. If those guys had presented that
idea on Demo Day, investors would have laughed at them. But it turns
out, everything has some adjacent territory, if you're energetic enough.
It's OK to start out with a small idea. People are bad at looking at
seeds and guessing what size tree will grow out of them.

The way you'll get big ideas in, say, health care is by starting out
with small ideas. If you try to do some big thing, you don't just need
it to be big; you need it to be good. And it's really hard to do big and
good simultaneously. So, what that means is you can either do something
small and good and then gradually make it bigger, or do something big
and bad and gradually make it better. And you know what? Empirically,
starting big just does not work. That's the way the government does
things. They do something really big that's really bad, and they think,
Well, we'll make it better, and then it never gets better.

The very best ideas usually seem like bad ideas at first. Google seemed
like a bad idea. There were already several other search engines, some
of which were operated by public companies. Who needed another? And
Facebook? When I first heard about Facebook, it was for college
students, who don't have any money. And what do they do there? Waste
time looking at one another's profiles. That seemed like the stupidest
company ever. I'm glad no one gave me an opportunity to turn it down."

What I love is that Paul puts his finger on the biggest problem with thinking big--it's really hard to do big and good simultaneously.

Even Elon Musk and Tesla had to start relatively small, by retrofitting Lotus roadsters with electrical drivetrains, before bringing out the smash hit Model S. And Elon had the benefit of already being a successful two-time entrepreneur and billionaire.

Infamously, I was invited to the Google launch party and refused to go, believing that it was a waste of time to launch yet another search engine. Whoops.

Start with a small, good thing and make it bigger. Don't start with a big, crappy thing and make it better.

Sadly, the "controversy" over Paul being misquoted about foreign accents has overshadowed an interview that I think is worth its weight in gold. My favorite part of the interview is this passage:

"Most of the time, start-ups fail for the same reasons restaurants do:
Their food is bad. If a place has really good food, it can be in an
obscure location, charge a lot, and have really bad service, and it will
still be popular. If it has bad food, boy, it better do something
really special to get anybody in there. Which is why we say, "Make
something people want." That's the fundamental problem. If you die, it's
probably because you didn't make something people wanted."

It never ceases to amaze me when I see entrepreneurs working 100-hour weeks on the equivalent of table centerpieces, waiter uniforms, and the fonts on the menu. Make good food, and you'll have a shot at succeeding. Make bad food, and you'll be Guy Fieri.http://nyti.ms/14p97u6

Even with the power of a national brand and a nightly primetime soapbox, you won't be able to overcome your own revolting cuisine.

If people want your products, you can figure out the answers to the other questions. If people don't want your products, none of the other answers matter.

I loved this recent blog post from Steve Blank because it spoke to one of my main problems: How to decide whom to meet with:http://bit.ly/14WtJxt

"The meeting requests that now jump to the top of my list are the few, very smart entrepreneurs who say, “I’d like to have coffee to bounce an idea off of you and in exchange I’ll tell you all about what we learned about xx."This offer of teaching me something changes the agenda of the meeting from a one-way, you’re learning from me, to a two-way, we’re learning from each other.

It has another interesting consequence for those who are asking for the meeting – it forces them to think about what is it they know and what is it they have learned – and whether they can explain it to others in a way that’s both coherent and compelling."

Steve's strategy works on a variety of levels. First, offering your expertise makes you stand out from the vast crowd of people who are looking for advice. While I strongly believe that most people are egomaniacs who can't resist the flattery of a receptive audience looking for advice, many of us are simply far too busy to say yes to all meeting requests, no matter how egotistical we might be.

The people you want to meet with usually can't be bribed with money (they have too much) or hype (they understand that it's all BS). But they can be bribed with knowledge.

Second, meeting with people who value learning dramatically increases the probability that you're talking to the right person. You want to learn from someone who is always learning, not some egomaniac who believes he already knows all the answers.

Finally, as Steve points out, it helps you hone your own value. (At some point, I'm going to write a full taxonomy of the "value" a particular stranger presents (important variables include money, fame, and relevance)) This will help you both with this meeting, and with future ones, and will help steer you in the right direction to leverage your particular comparative advantage.

Sunday, September 01, 2013

With the rise of social media, the humble headline has become a big business.

In the fraction of a second that a consumer sees a headline, that person makes the decision whether or not to click. Entire fortunes have been built on that fraction of a second. Entire companies like Buzzfeed and Upworthy have been built around the effort to optimize them.

Sadly, these for-profit companies aren't exactly eager to reveal their secrets. Fortunately, some Stanford researchers have done their own digging, and shared the results (which I found via yet another practitioner of the dark art of headlines, Business Insider):http://read.bi/1dzpc8V

By studying items that had been submitted to Reddit multiple times under different headlines, the researchers were able to draw some general conclusions about how to write good headlines:

"It's good if you use some of the positive sentiment words in the title," said Lakkaraju. Reddit posts with positive ideas or words perform much better than Reddit submissions with negative ideas or words.

"Shorter sentences are better and sentences that are questions are better," said Leskovec."

The rules are simple (be positive, keep it short, make it a question), but they work. The researchers proved it by conducting their own experiment on Reddit:

The team pooled 85 images from their database and assigned two titles to each one, one considered "bad" by their model and the other considered "good." They then submitted the same image with two titles at around the same time to two similar subreddits — for instance, Pics and Funny — and then figured out how their model performed. Well, two of the "good" titled pictures made the front page, and the good titles got roughly three times higher scores — 10,959 points versus 3,438 points.

For those keeping track at home, a simple headline change resulted in a tripling of results.

If you're promoting your startup, your product, or your own brand, you're likely to use Twitter and Facebook. Every time you do so without optimizing your headlines, you might be giving up 67% of your potential traffic.

As a startup guy, I always seem to find myself selling against the evil empire. The empire is always changing (in my own career, it's gone from Microsoft to Google to Facebook) but the story remains the same: You're always outnumbered, and you're always outgunned.

Yet despite these facts, my companies have been able to win their fair share of battles for customers. One of the secrets, that most people don't realize, is letting the customer see you sweat.

As a startup, you'll never be able to compete on manpower, track record, or financial stability. What you can do is blow away the competition by demonstrating your willingness to make an effort.

Big company salespeople are working tons of deals, and whether or not they win a particular deal determines whether or not they get to take a nice vacation that year.

As a company founder, winning a particular deal may be the difference between success or failure. Even beyond the money, winning an anchor customer in a key market can be a game-changer.

Years ago, I needed to figure out a beachhead market for PBworks. After scanning our user base, I thought that ad agencies might be a good market for us. So I began networking and looking for opportunities. A few months later, I was able to meet in person with Toby Ward of Prescient Digital (who is the man to see if you need an Intranet!).

Toby recommended us to a major advertising agency, as a potential intranet vendor. When we got word that we had been picked to demo to their CTO and his staff, we pulled out all the stops. The demo account we built used their branding and assets, and included fake user profiles for all of the people scheduled to attend the meeting. We even recreated some of their recent projects to show how they could use our collaboration platform to do their work.

This did 2 key things. 1) They didn't have to imagine how we could help them--we showed them. 2) They saw how hard we worked and thought, "If they work this hard on the demo, imagine how they'll serve us as customers."

We won the deal over 16 other vendors, including Microsoft. They're still a customer today.

It's not always fun to let people see you sweat, but as a startup, it can be a major advantage.

This post was partially inspired by Patrick McKenzie's awesome guide to Selling Software to Large Businesses:http://bit.ly/19ZypmX